Joao Cravinho said there was a move in India towards viewing trade as part of its integration towards global value chains. Photo: Priyanka Parashar/Mint

New Delhi: A “political spark” is required to get long-running talks on a free trade agreement (FTA) between India and the European Union (EU) moving, a senior European diplomat said on Wednesday, adding an agreement would help burnish India’s credentials among international investors looking to set up shop in Asia’s third largest economy and use it as a base for exports.

Joao Cravinho, the 27-member EU’s ambassador in India, said agreements like the India-EU FTA would ensure duty-free access for goods made in India to foreign markets, making India more attractive to foreign investors.

Negotiations on the FTA, called the bilateral trade and investment agreement, began in 2007, but the two sides have missed at least four deadlines to finalize a deal. While the EU is keen on greater market access to India, including for a large number of agricultural products, India wants to see fewer restrictions on the temporary movement of its nationals working in Europe.

At a press conference in New Delhi, Cravinho noted that the last round of FTA talks happened in mid-2013 while the Congress-led United Progressive Alliance (UPA) government was in office. With India going for general elections in April-May 2014 and a new European Commission headed by President Jean-Claude Juncker taking office in November, there were only informal contacts between the two sides, Cravinho said.

“Essentially, we are waiting for the definition from the Indian side of exactly what we would like to do in the trade relationship… We are awaiting the new trade policy and the budget. That will be a very important element for us to understand where we can go with the EU India trade relationship, whether we put it on the back burner and say, let us concentrate on other things (or) whether we just say we finalize this because at the end of the day the work we have already done is…superior to the work that remains to be done,” Cravinho said.

“We have all the ingredients for a much deeper relationship… We need a political spark, we need to have at the highest level a meeting of our leadership,” the EU ambassador said.

The Narendra Modi government that took office in May has raised the foreign direct investment ceiling in defence and insurance, among others, to attract investments. Last month, the government decided not to appeal a high court ruling in favour of the Indian unit of Vodafone Group Plc. in a tax case. The move was seen as aimed at reassuring foreign investors, especially those unnerved by a retrospective tax legislation introduced by the previous government and a spate of tax litigation. EU officials on Wednesday welcomed these moves as steps in the right direction, but indicated that they were waiting for the federal budget on 28 February for greater clarity on policy.

Describing the foreign trade policy as “the crystallization of the thinking of the government in terms of its external trading relations,” Cravinho said the EU side would be looking at the document for clues from policymakers.

“We have seen very good progress in the Trans-Atlantic (Trade and Investment Partnership) negotiations; we have seen very promising developments and maybe even close to an agreement in the Trans-Pacific Partnership and I think everybody is very interested in India being a part of the global trading arrangement,” he said, referring to trade deals being negotiated between the US and Europe and the US and Asian countries. “We are very engaged in that process and hope that the EU-India story is part of that,” he said.

Cravinho said there was a move in India towards “viewing trade as part of its integration towards global value chains… Make in India has to be about integrating India into the global value chain. Now, trade relations are fundamental to achieving that objective”, he said.

According to T.S. Vishwanth, principal adviser at APJ-SLG Law Offices, it is in the interest of both sides to clinch the FTA. “It will help build value chains, but you need to take sensitivities of both sides into account while concluding any pact,” he said.

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